Addy Company makes two products: Product A and Product B. Annual production and

Question

Addy Company makes two products: Product A and Product B. Annual production and sales are 2,700 units of Product A and 2,300 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.30 direct labor hours per unit and Product B requires 0.60 direct labor hours per unit. The total estimated overhead for next period is $187,940

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools--Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.)

$35.31.

$39.53.

$51.49.

$25.75.

Addy Company makes two products: Product A and Product B. Annual production and sales are 2,700 units of Product A and 2,300 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.30 direct labor hours per unit and Product B requires 0.60 direct labor hours per unit. The total estimated overhead for next period is $187,940

Explanation / Answer

Activity cost pool estimated overhead cost ($) Total activity ($) Activity rate ($) Activity 1 65965 3950 16.70 Activity 2 30652 3160 9.70 general factory 91323 2190 41.70 Activity cost pool Activities Activity rate ($) Activity cost ($) Activity 1 1150 16.7 19205 Activity 2 460 9.7 4462 general factory 1380 41.7 57546 Total 81213 Number of units of B 2300 overhead cost per unit of Product B 35.31

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